Debate Rages: Who Will Run Iraq's Utilities?

Posted by Sadie from ? (160.129.27.22) on Monday, June 09, 2003 at 2:35PM :

June 8, 2003
San Francisco Chronicle

Debate Rages Over Who Will Run Iraq's Utilities
Privatization vs. public control emerges as key issue in shaping future of country

by David R. Baker

In Iraq, a country ringed by desert and often seared by 110-degree heat, no commodity matters more than water.

Its delivery to homes, businesses and fields used to be the province of Saddam Hussein's government. Now, as U.S. forces rebuild the country, debate is growing over who should control the tap.

Should Iraq's water system remain in public hands as a state-run utility? Or should private companies -- Iraqi or foreign -- run it?

If one were to define a core democratic decision a people could make, the treatment of things like water and power and media would be it. It's a pretty basic part of government.

Benjamin Barber, author of the impending book "Fear's Empire: War, Terrorism and Democracy."
The same questions hang over Iraq's other basic utilities -- its power grid and sewage system. Although San Francisco's Bechtel Corp. is now working to repair them, all will need serious long-term investment for the country to thrive. Some experts see private management as a way to pump money into those utilities.

And yet the thought of privatizing such basic human needs raises fears that the people of Iraq will lose control over their own resources. Much like the debate over oil, arguments about utility privatization reflect fears that Iraq's reconstruction will turn into a great grab -- with a few people or corporations seizing the country's key assets.

Federal officials, aware of the emotions this issue stokes, say a decision on Iraq's utilities must wait until an interim Iraqi government takes charge.

"That question speaks to the very heart of how we deal with the Iraqi people," said Ellen Yount, spokeswoman for the U.S. Agency for Overseas Development. "Obviously, the goal with all of these things is not to have top- down decisions, but decisions made by the Iraqi people."

Battered by war and stripped by looters, Iraq's utilities are in desperate need of repair.

Power plants still in operation supply a fraction of the electricity the country needs. A Bechtel spokesman who recently toured southern Iraq described electrical systems kept running only through the skill of Iraqi engineers forced to improvise without needed spare parts. Families have been storing water in old barrels rather than rely on water systems that sometimes don't work.

Bechtel's $680 million reconstruction contract covers repairs to the country's electrical grid, water works and sewers. But what happens after those immediate repairs?

Defense Secretary Donald Rumsfeld has already said he wants to see some of Iraq's state-run businesses sold off, although he did not specifically mention the utilities. Conservatives see privatization as a way to dismantle the vestiges of Baath Party power in Iraq, because Hussein's government controlled most every aspect of the economy before the war.

Planners also view private utility companies as a way to make water and power systems more efficient and encourage investment in their repair.

"The point of privatization is it creates a strong incentive for the people operating these systems to get it right," said David Dowall, a professor of city and regional planning at UC Berkeley who has consulted with several Middle Eastern governments on their utility systems.

"The downside," he said, "is that people don't like to pay higher prices."

State-run utility systems typically rely on heavy public subsidies, meaning citizens don't directly pay the full cost of the water and power they use. That is particularly true in the Middle East, where oil revenue long has funded many government services. Switching to private utility systems often means an increase in rates.

That can be a hardship for the poor. A recent report by the International Consortium of Investigative Journalists, for example, claims efforts to privatize water systems in South Africa during the late 1990s led to a cholera outbreak, as people unable to pay higher rates started drinking from polluted streams, ponds and lakes. The outbreak killed nearly 300 people.

Higher rates for water also led to a legal dispute for Bechtel in Bolivia.

Hired to run the water system in Cochabamba, Bolivia, a Bechtel joint venture saw its contract canceled by the government after protests against price increases turned violent. Bechtel says the hikes averaged 35 percent. Some Cochabamba residents complained their bills doubled before the fee increases were revoked.

Bechtel and the Bolivian government are now locked in arbitration proceedings before an international financial panel, with the company seeking compensation for the canceled contract.

That case has raised suspicions among activists about Bechtel's intentions in Iraq.

"Their record depicts that trend -- they privatize the service, they raise the price, and only those who can afford it get it," said Antonia Juhasz, a project director at the International Forum on Globalization think tank in San Francisco.

Bechtel insists it has no preference for whether Iraq's utilities stay public or turn private. Company spokesman Jonathan Marshall said protesters have oversimplified a complex situation in Bolivia, a situation he says has nothing to do with Bechtel's job in Iraq.

"Iraqi children are swimming in and drinking raw sewage, and we're trying to fix that," he said.

The debate about water privatization efforts even surfaced at last week's summit of the Group of Eight major industrial nations in Evian, France. Protesters urged government officials in attendance to back off water privatization projects in developing countries.

Dowall noted, however, that the strict public and private models for water and other utilities aren't the only choices. Governments can set up competitions among private companies bidding to run utilities at the lowest possible subsidy. They can hire companies to work with specific rates. They can turn utilities into quasi-public organizations whose core assets are still owned by the state.

"I don't think you have to lurch from one extreme to another," he said. "There are models in the middle that work."

That choice, many observers insist, must be left to the Iraqis.

"If one were to define a core democratic decision a people could make, the treatment of things like water and power and media would be it," said Benjamin Barber, author of the impending book "Fear's Empire: War, Terrorism and Democracy." "It's a pretty basic part of government."